The Federal Estate Tax is about to change. This blog will keep you up-to-date and link you to relevant and timely articles on the federal estate tax reform.

06/22/2010

Paul Krugman (and Senator Reid) on reducing the estate tax: “This would do nothing for the economy now, but it would reduce revenues by billions of dollars a year, permanently.”

On June 20, 2010, the New York Times published an op-ed by Paul Krugman, Now and Later. Krugman writes about the difficult state of the economy and the need to eventually raise taxes, but Krugman urges Congress to gets its timing correct.

Krugman would not reduce the federal estate tax. He asserts that such a tax cut would not help the economy:

So America has a long-run budget problem. . . .

But if we need to raise taxes and cut spending eventually, shouldn't we start now? No, we shouldn't. . . .

The responsible thing, then, is to spend now, while planning to save later.

As I said, many politicians seem determined to do the reverse. Many members of Congress, in particular, oppose aid to the long-term unemployed, let alone to hard-pressed state and local governments, on the grounds that we can't afford it. In so doing, they are undermining spending at a time when we really need it, and endangering the recovery. Yet efforts to control health costs were met with cries of "death panels."

And some of the most vocal deficit scolds in Congress are working hard to reduce taxes for the handful of lucky Americans who are heirs to multimillion-dollar estates. This would do nothing for the economy now, but it would reduce revenues by billions of dollars a year, permanently.

But some politicians must be sincere about being fiscally responsible. And to them I say, please get your timing right. Yes, we need to fix our long-run budget problems — but not by refusing to help our economy in its hour of need.

On June 21, 2010, Senator Harry Reid [D-NV] quoted Krugman's article on the floor of the Senate. Here are Sen. Reid's comments (quoted from the Congressional Record:

Mr. REID. Mr. President, my friend says he has never seen anything like this. Well, I have never seen anything like this reasoning. Everyone knows that President Obama did not cause the oil gushing into the ocean, and he has done his utmost to try to alleviate the pain and suffering of the people in the gulf. He had the good fortune of getting the company responsible for this oil gushing out of the ocean to come up with a $20 billion trust fund to pay the people who suffered. There were some Republicans last week who said they thought it was wrong for the President to do that. But that was a very small minority who believed that. I have never seen anything like this. So President Obama is not responsible for the oil gushing out of the Earth into the ocean, and President Obama is not responsible for the severe recession that hit this country in the last few months of the Bush administration.

I cannot imagine anyone thinking we should not have taken the measures we did to help bolster the economy. The economic recovery package created millions of jobs. There is still money in the pipeline to create more jobs. And as it says in this one op-ed piece in the New York Times today:

And some of the most vocal deficit scolds in Congress are working hard to reduce taxes for the handful of lucky Americans who are heirs to multimillion-dollar estates. This would do nothing for the economy now, but it will reduce revenue by billions of dollars a year, permanently.

It will be interesting to see in the next few weeks how these same budget hawks feel about the estate taxes that we have to address. I would hope we can all be calm and deliberate here. We have a few weeks left. We have 2 weeks in this week period, 4 or 5 the next work period to get some things done here.

We have appropriations bills we have to do. We have these tax extenders we have been working on, as I indicated, for 8 weeks. We have the unemployment benefits we need to extend. People are now desperate for that money. We have also something to help States called FMAP, which helps for Medicaid, which has been such a drain on the States because of the tremendous problems we have had with people being out of work and needing to go on Medicaid because there is no place else for them to go for health care.

I would hope we can move forward on the legislation that we tried try to finish last week. I am grateful we were able to finally get the short-term fix on the patients who are Medicare recipients. Now if we can get something done in the House there, doctors will be able to be reimbursed not at the fat and sassy rate, but at least it will be better than the 21-percent cut that was going to go into effect today or tomorrow.

Sen. Reid's comments inform that (1) the Senate might take up estate tax reform in the coming weeks, if it has time; and (2) Sen. Reid will probably oppose any estate tax measure that would increase the deficit.

2 Comments

I think Congress will conveniently work on other issues and let 2010 come and go and we'll have a $1.0 million exemption with 55% rates, along with the return of stepped-up basis. It's just to easy for them to let that happen and avoid all of the headaches they'd have to address, especially with the "paygo" rules.

I think that Congress could simply enact an estate tax retroactively and at least make a claim on the estates of real-estate magnate Walter Shorenstein, energy titan Dan Duncan, and Yankee owner George Steinbrenner. Realistically, those guys planned on an estate tax situation anyway and it will be worked out in the courts, not the legislature. If retroactive application is struck down, then so be it. If it is never attempted, then its almost like Congress is refusing to raise the easiest revenue possible. The estate taxes are due in cash 9 months from the date of death. Congress could probably come up with over 5 billion dollars in under a year without having to do anything.